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Note: The Articles below are for informational purposes only. Said articles are not intended to provide legal advice, nor should they be used as such, as there is no intended audience for this information.

Bankruptcy And The Moral Obligation to Repay Debt

March 15, 2019

Before an individual or married couple files a bankruptcy petition they have to qualify for the relief they seek based upon their annual income and family size. The process for an individual or married couple to qualify for bankruptcy relief is beyond the scope of this article. However, once an individual or married couple initially qualifies for bankruptcy relief that is not the end of the inquiry.

Bankruptcy relief is not available to everyone who qualifies for bankruptcy. Bankruptcy relief is intended for "the honest but unfortunate debtor."[1] Bankruptcy courts that have dealt with this issue have made it clear that a bankruptcy discharge relieves a debtor from the legal obligation to repay their debts. A bankruptcy discharge is a legal injunction that bars creditors from collecting on a debt subject to a completed bankruptcy case.[2] However, the moral obligation to repay debts is not discharged in a bankruptcy proceeding.[3] This dichotomy is contained within the U.S. Bankruptcy Code. "Nothing contained in ... this section prevents a debtor from voluntarily repaying any debt." 11 U.S.C. §524(f).

Voluntarily repaying a debt after discharge should not be confused with making a new agreement with a prior creditor to repay an old debt. If you make a new agreement to repay a debt, after it was discharged, you may be contractually responsible to repay that debt. There is an old line of bankruptcy case law that held as much. That case law has been abrogated by statute. However, it is best to avoid this grey area by paying pursuant to your conscience and nothing more. Moral obligations do not require contracts.

For those who need bankruptcy relief, but do not want to file for such relief because of the moral obligation to repay their lawful debts, understanding that the moral obligation remains after entry of a bankruptcy discharge can resolve this quandary. Most people cannot survive a 25% garnishment of their pay after a creditor obtains a judgment against them.[4] If a family's home is in foreclosure, because of a loss of income, a Chapter 13 reorganization can stop the foreclosure from going forward and allow the home-owner up to 5 years to cure the arrears on their mortgage that lead to the foreclosure. There are sensible reasons for a person or family to file a bankruptcy petition other than merely a desire not to repay their creditors.

If you find yourself under threat of a 25% reduction of your wages because of a garnishment, or the loss of your home through foreclosure, you can pursue bankruptcy relief to stop the loss of your home or the inability to pay your living expenses. Once the financial threat has been addressed through a bankruptcy filing, then you can review your finances and decide how to meet the moral obligation to repay your debts. After filing bankruptcy and the discharge of your debts such creditors cannot force you to repay them. This allows you the time to decide whom and how to best repay your moral obligation to past creditors.

If you find that you were unable to repay your creditors, after filing bankruptcy and receiving a discharge of your debts, then bankruptcy was a necessary remedy to address garnishment or foreclosure. Failing to address financial issues for moral reasons, when the money was not available to pay your creditors, could result in falling behind on your utility bills, repossession of a vehicle, or being homeless.

Filing a bankruptcy petition may not be the remedy of choice but it has been an option since the foundation of our country as it is provided for in the U.S. Constitution.[5]

We are a debt relief agency we assist people in filing for bankruptcy.

I Have Been Served With A Notice of Garnishment Now What?

November 22, 2018

A wage earner receives a packet from their employer notifying them their wages will be garnished, and this is the first such notice they received, the first step is to look at the name of the creditor that served the notice of garnishment. If the judgment debtor recognizes the name of the creditor garnishing them, and were aware that creditor had previously filed a legal action against them, then move to the bottom of this article dealing with reducing the amount of the garnishment percentage of wages.

If the notice of garnishment was the first notice that a creditor had filed a legal action against the wage earner, then the judgment debtor should telephone the clerk of the court where the request to garnish the wages was filed. The judgment debtor should ask the clerk to read to the method of service made in the case against the Defendant in that case. In small claims actions service has to be made by certified mail return receipt signed by the Defendant or personal service by a process server. In justice court service generally has to be personal service by a process server. In the Superior Court service also generally has to be personal service by a process server.

Service by a licensed process server is to be made upon the Defendant personally or at their "dwelling or usual place of abode with someone of suitable age and discretion who resides there."[1] Service can also be made by court order for alternate service by posting and mailing the summons and complaint to the address where the Defendant resides.[2] If service was alleged to have been made at an address other than where the Defendant resided at that time, the judgment debtor can file a motion with the court to vacate the judgment giving rise to the garnishment, as being invalid from improper service. The judgment debtor will have to provide the court proof that they were residing elsewhere at the time service was alleged to have been made upon them.

Service can also be made by publication when "the serving party, despite reasonably diligent efforts, has been unable to ascertain the person's current address; or the person to be served has intentionally avoided service of process."[3] Again, if the judgment debtor believes their residential address was readily ascertainable by a creditor or were not avoiding service, they can file a motion with the court to vacate the judgment giving rise to the garnishment as being invalid for improper service. The judgment debtor will have to provide the court proof they were residing at a known location when service was alleged to have been made upon them and/or were not avoiding service.

If the judgment giving rise to the garnishment is vacated for improper service, the judgment debtor can file an answer in that action and defend against the creditor's claim against them, or try to make payment arrangements (a "settlement") with that creditor.

If the garnishment of wages is based upon a valid judgment, the creditor is allowed to receive "twenty-five per cent of disposable earnings for that week or the amount by which disposable earnings for that week exceed thirty times the minimum hourly wage prescribed by federal law in effect at the time the earnings are payable, whichever is less."[4] The foregoing limitation does not apply to deductions for support payments.[5] This limitation on deduction from wages is after "those amounts required by law to be withheld."[6]

Most working people cannot afford to have 25% of their after tax income garnished. It is possible to ask a court to reduce the garnishment amount to 15% if one can show, "based on clear and convincing evidence, that the judgment debtor or the judgment debtor's family would suffer extreme economic hardship as a result of the garnishment."[7] Within the garnishment packet is a form to request a hearing from the court issuing the Writ of Garnishment. It is unlikely that form will contain a specific option to request a hearing for the purpose of reducing the garnishment percentage. Such a request is made at the end of the hearing options pursuant to the heading "Other." Like all motions brought before a court the burden is upon the party seeking relief to prove they are entitled to that relief. At a minimum the judgment debtor would need to present the court judge or commissioner evidence of their monthly income, housing expenses, transportation expenses, and other daily and monthly expenses justifying a reduction of the garnishment percentage. The " clear and convincing" standard above is the highest standard to meet in a civil court proceeding. This heightened burden of proof, upon the judgment debtor, indicates the reduction of the garnishment percentage is not automatic nor a right but has to be proven by the judgment debtor.

A bankruptcy filing will stop a garnishment. Mr. Allegrucci has assisted clients with issues such as garnishment in Bankruptcy Courts since the year 1987. In so doing we are a debt relief agency assisting people to file for Bankruptcy.

Does A Retired Person Need to File Bankruptcy?

August 7, 2018

A person retiring to a fixed income with credit cards and other credit debt may find themselves unable to pay this debt incurred while employed. It is then they may consider bankruptcy as an option to deal with their predicament. Generally, people file bankruptcy to prevent their wages from being garnished, to stop the foreclosure of a home, or repossession of a vehicle.

Garnishment is generally not an issue for a person who has retired on a fixed income. Social Security benefits are protected from garnishment.[1] Likewise military disability benefits are exempt from garnishment.[2] Most pension income is protected by Arizona law.[3] Such pensions are generally referred to as "ERISA" qualified pensions. Annuity income, from a policy owned continuously for two (2) years by a person, is protected from garnishment under Arizona law.[4] Income from an employer's disability or accident policy are also protected from garnishment under Arizona law.[5] The assets within an IRA are protected from collection in Arizona[6] and in a bankruptcy proceeding.[7]

Arizona protects $150,000 of equity in a home in which a person resides from collection by creditors other than mortgage, homeowners associations, tax claims, and support claims.[8] Arizona also protects $6,000.00 of equity in a person's vehicle and $12,000.00 in a vehicle for a person with a physical disability.[9]

There are more laws that protect other property from collection by a person's judgment creditors. However, since most of a retired person's income and largest assets are protected from collection by judgment creditors, the question then becomes why would such a person need to file bankruptcy? The answer would be to stop the collection calls and letters.

Also if sued, and a creditor obtains a judgment against a person, the judgment creditor can obtain a court order from the court issuing the judgment for the judgment debtor to appear and produce detailed financial records to help the creditor determine if it can collect on its judgment. Filing bankruptcy can stop the necessity of appearing in a court and producing very detailed financial records for a judgment creditor. However, filing bankruptcy requires completion of schedules and statements that do require detailed reporting of various financial information for two (2) years previously and some financial questions seek information from a debtor beyond that time period.

Understanding, that most of what a retired person owns and their income are protected from collection by law, should keep the inability to pay on their credit debt in perspective. Within that perspective filing bankruptcy is an option but not a necessity for the financial wellbeing of a retired person. Allegrucci Law Office, PLLC has assisted many retired persons who have chosen bankruptcy as the final option to deal with the inability to pay their credit debts.

Can My Homeowners Association (HOA) Foreclose On My Home?

July 8, 2018

​ The answer is yes, if you have been delinquent in payment of your HOA assessments for one (1) year, or the amount of unpaid assessments is at least $1,200.00, whichever occurs first.[i] If your HOA chooses to foreclose upon your home it must file a civil action in the superior court of the county where the property is located. Because a foreclosure action requires the filing of a court action, you have the right to defend in that action, if you believe the HOA is incorrect for any reason it is pursuing the foreclosure of your home.

If your HOA does file a foreclosure action against your home, it can be awarded its court fees, costs, and reasonable attorney fees incurred in that litigation. The fees, costs, and attorney fees of a foreclosure action will likely exceed the amount of the unpaid assessments due the HOA and being foreclosed against your property. Once a foreclosure action has been instituted by your HOA, you can still try and arrange a settlement of its claims by making repayment arrangements with the HOA. You also have a right to pay the unpaid assessments in full plus the fees, costs, and attorney fees incurred by your HOA in the foreclosure action.

If you still want to keep your property, and have been unable to resolve your issues with the HOA, you can file a Chapter 13 bankruptcy reorganization to stop the foreclosure of your property.

A Chapter 13 bankruptcy reorganization stops the filed civil action for foreclosure from going through, gives you up to five (5) years to catch-up the missed HOA assessments, fees and costs, and allows you to resume monthly/quarterly assessment payments to your HOA during that period. You do have to have a regular monthly income, sufficient to allow curing the missed assessments, fees and costs over time, for this to work.

David Allegrucci has represented clients in filing Chapter 13 bankruptcy proceedings since 1987. As such we are a debt relief agency assisting people in filing for bankruptcy.

[i] A.R.S. §33-1807(A)

[July 8, 2018]

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